A Health Savings Account is a tax-advantaged savings account tied to a high-deductible health insurance plan

A Health Savings Account (HSA) is a savings account you own and control that holds money specifically for medical expenses. Unlike a regular savings account, contributions you make to an HSA reduce your taxable income, the money grows tax-free, and withdrawals for may have access to medical costs are not taxed. You must be enrolled in a high-deductible health plan (HDHP) to open and contribute to an HSA — this is a requirement set by federal law, not optional.

The account stays with you even if you change jobs or health insurance plans. You are not required to spend the money in any particular year. If you do not use the funds, they roll over to the next year, and you can keep accumulating money indefinitely. This makes an HSA different from a Flexible Spending Account (FSA), where unused money is typically forfeited at the end of the year.

Key Takeaways

  • You can only open an HSA if you are enrolled in a high-deductible health plan; the account is portable and stays with you if you change jobs or insurance.
  • Contributions reduce your taxable income, growth is tax-free, and withdrawals for may have access to medical expenses are not taxed — a three-way tax advantage.
  • may have access to expenses include deductibles, copays, coinsurance, prescription drugs, dental work, vision care, and many over-the-counter items, but not health insurance premiums or cosmetic procedures.
  • Contribution limits change yearly and vary based on whether you have individual or family coverage; for 2024, the limit is $4,150 for individual coverage and $8,300 for family coverage.
  • If you withdraw money for non-medical expenses before age 65, you pay income tax plus a 20 percent penalty; after 65, you pay only income tax, like a traditional retirement account.

Who can open an HSA and what the enrollment requirements are

You must meet three conditions to open an HSA. First, you must be enrolled in a high-deductible health plan. The IRS sets the minimum deductible each year — for 2024, that is $1,600 for individual coverage and $3,200 for family coverage. Your insurance company will tell you whether your plan qualifies; most plans marketed as HSA-compatible meet this threshold. Second, you cannot be covered by any other health insurance at the same time, with limited exceptions for specific plans like dental-only or vision-only coverage. Third, you cannot be claimed as a dependent on someone else's tax return, and you cannot be enrolled in Medicare.

You open an HSA through a bank, credit union, or financial institution — not through your employer or insurance company, though your employer may offer one as a payroll option. If your employer offers an HSA, you can contribute through payroll deductions, which is often simpler than opening one independently. You can also open an HSA on your own at any time during the year, as long as you remain enrolled in an HDHP.

How much you can contribute each year

The IRS sets annual contribution limits, and these amounts change yearly. For 2024, you can contribute up to $4,150 if you have individual coverage or $8,300 if you have family coverage. If you are age 55 or older, you can contribute an additional $1,000 per year, called a catch-up contribution. These limits apply to the total of all your HSA contributions from all sources — your own deposits, employer contributions, and spousal contributions combined.

You can contribute at any time during the year, but contributions for a specific tax year must be made by the tax filing deadline (usually April 15 of the following year) to count toward that year's deduction. If you enroll in an HDHP partway through the year, you can still contribute the full annual amount, but only if you remain enrolled in an HDHP through December 31 of that year.

What counts as a may have access to medical expense you can pay from your HSA

may have access to medical expenses are costs related to diagnosing, treating, or managing a medical condition. These include deductibles, copays, and coinsurance you owe under your health plan; prescription medications; dental work like fillings, cleanings, and orthodontia; vision care including eye exams, glasses, and contact lenses; hearing aids and batteries; and many over-the-counter items like pain relievers, allergy medicine, and first-aid supplies. You can also use HSA funds to pay for mental health counseling, physical therapy, and medical equipment like crutches or blood pressure monitors.

Expenses that do not count include health insurance premiums (with a few exceptions for COBRA continuation coverage, long-term care insurance, and Medicare premiums after age 65), cosmetic procedures, gym memberships, vitamins taken for general wellness, and over-the-counter items not used to treat a specific medical condition. If you are unsure whether an expense qualifies, the IRS publishes a detailed list, and your HSA provider can also answer questions about specific items.

How to use your HSA funds and keep records

Most HSAs come with a debit card you can use to pay for may have access to medical expenses directly at the point of service — at a pharmacy, doctor's office, or medical supply store. You can also pay out of pocket and then reimburse yourself from your HSA later, even years later, as long as you keep receipts and documentation. Some people use this strategy to let their HSA grow invested over time and only withdraw funds when they need them.

You are responsible for keeping records that show each expense was may have access to and that you have not already been reimbursed by insurance or another source. The IRS does not require you to submit receipts when you file taxes, but you must have them available if the IRS asks. If you withdraw money for a non-may have access to expense, you owe income tax on that amount plus a 20 percent penalty. After age 65, you can withdraw money for any reason without the penalty, though you still owe income tax on non-medical withdrawals.

How your HSA grows and what happens to unused money

Most HSAs allow you to invest the balance in mutual funds, stocks, or bonds, similar to a retirement account. The money grows tax-free, and you pay no tax on the gains when you withdraw funds for may have access to medical expenses. Some HSAs keep balances in a cash account earning interest; others require you to maintain a minimum cash balance (often $1,000 to $2,500) before you can invest the remainder. Check with your HSA provider about their investment options and any fees.

Unlike an FSA, there is no "use it or lose it" rule. Money you do not spend in one year stays in your account and continues to grow. This makes an HSA a powerful long-term savings tool — you can accumulate funds over decades and use them in retirement to pay for medical expenses, or even leave the balance to your heirs. If you leave an HSA to a spouse, they can continue using it as their own HSA. If you leave it to anyone else, they owe income tax on the full balance, though not the 20 percent penalty.

What happens to your HSA if you change jobs or lose your HDHP coverage

Your HSA is yours to keep regardless of employment changes. If you leave your job, the account remains open and the money stays available for medical expenses. You can continue to use the funds even if you switch to a different health insurance plan, as long as you do not contribute additional money while you are not enrolled in an HDHP. If you enroll in a non-high-deductible plan or Medicare, you can no longer make new contributions, but you can still withdraw money for may have access to medical expenses without penalty.

If you lose HDHP coverage and do not enroll in another HDHP within a certain period, you cannot make new contributions until you re-enroll. However, the money already in your account is not affected. Some people maintain an HSA for years after leaving an HDHP specifically to use it as a medical expense fund in retirement, since Medicare does not prevent you from withdrawing HSA funds for may have access to costs.

Frequently Asked Questions

Can my employer contribute to my HSA?

Yes. Employer contributions count toward the annual limit but do not count as taxable income to you. If your employer contributes $2,000 and you contribute $2,000, you have reached the $4,150 individual limit for 2024. Employer contributions are a common benefit and reduce the amount you need to save out of pocket.

What if I use my HSA debit card for something that is not a may have access to expense?

You owe income tax on that amount plus a 20 percent penalty if you are under 65. If you discover the mistake, some HSA providers allow you to correct it by redepositing the funds. Keep receipts so you can prove which expenses were may have access to if the IRS questions your withdrawals.

Can I use my HSA to pay for my spouse's medical expenses?

Yes, as long as your spouse is not covered by their own health insurance plan. If your spouse has separate coverage, you cannot use your HSA to pay their expenses. If your spouse is uninsured or covered under your family plan, HSA funds can be used for their may have access to medical costs.

What is the difference between an HSA and an FSA?

An FSA is tied to your employer and ends when you leave the job; an HSA is portable and stays with you. FSAs have a "use it or lose it" rule; HSAs roll over indefinitely. HSAs require an HDHP; FSAs do not. HSAs allow investment growth; most FSAs do not. Both offer tax advantages for medical expenses.

Can I open an HSA if I am self-employed?

Yes, as long as you are enrolled in a high-deductible health plan. You can open an HSA independently at a bank or financial institution. Self-employed people can deduct HSA contributions on their tax return, making it a valuable tool for reducing taxable income.